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New financial instruments to develop private sector

LNDC boss Mohato Seleke

Aug. 13, 2020 3 min read

3 min read

MASERU – The Lesotho National Development Corporation (LNDC) has launched development finance instruments aimed at developing and growing the country’s private sector to realize its full potential.

The three instruments include a restructured Partial Credit Guarantee (PCG) scheme, the Quasi Equity and the Project Preparation Facility. They are projected to offer financing solutions and support private sector led industrial development and broader economic diversification and also to alleviate the effects of COVID-19 pandemic.

Through this initiative, the LNDC has partnered with all the four commercial banks in the country. Designed under the Development Financial Unit, the three instruments come with a total envelope of close to M410 million plus M350 million pledged by government particularly for the Partial Credit Guarantee (PCG) scheme.

Fully Basotho owned medium to large firms with three years of profit and a 10 percent growth in annual turnover for the past three years are among the beneficiaries. The Quasi Equity instrument, for instance, will provide innovative finance to fast growing local companies which promise high development effects, mostly in agriculture and manufacturing. “The product will be offered as a standardised profit sharing arrangement with up to two years of moratorium,” the  LNDC said on Thursday last week.

The maximum loan amount under this instrument will be subject to fund capitalisation, at 15 percent single borrower limit and other considerations. To be eligible under this instrument, the borrower should be in a position to contribute 20 percent project costs, fall under the LNDC priority sectors and have a three-year track record with no payment default within that period.

The Project Preparation Facility on the other hand is designed following a trust fund model where government through LNDC will contribute funding together with external partners and the LNDC as the administrator will charge a fee for managing fund contributed by partners. “Today marks the first product launch by LNDC’s Development Finance Unit since the unit was established in 2018 after the approval of the LNDC Strategic Plan 2018-23.

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LNDC Building Maseru

“Unless otherwise agreed by partners, the PPF funds will be disbursed as a pure grant to eligible projects with expected high development effects, subject to project size, preparation needs and fund capitalization,” the LNDC added during the same event.

The grant amount per customer will be subject to the LNDC determination during the approval phase, availability of funding and agreements with partners. Standard projects will involve investments with an average size of M150 000 while large projects will have an average size of M1 million. 

The unit was established in 2018 following the approval of the new Strategic Plan, and 2019 saw the hiring of a consultant to assist in the design of the three instruments, namely - equity fund, quasi equity as well as the project preparation facility. The work proceeded with a market survey to assess the nature of financing needs for the instruments and to inform their design. 

The resulting feasibility study recommended that LNDC start by restructuring the existing Partial Credit Guarantee (PCG) and setting up the Quasi Equity and Project Preparation Instruments and only introduce the Equity Fund in the second phase of the projeManagement plans to introduce other financing instruments such as trade finance instrument and an instrument which targets small businesses, whose set up will also be included in the second phase of the project. The second phase will commence in the 2020/21 financial year.

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